Chart 2: Trump is taking US tariff rates to highest level since World War II (Source: Bloomberg)
European equities benefitted from the sell-off in US equities, up 3.7% in February. Export-heavy sectors faced headwinds, but “value” and “yield” stocks were in high demand as investors sought stability amidst global volatility. Emerging markets, aside from China, were generally down due to the US tariffs. Emerging market currencies like the Mexican Peso and South African rand came under pressure. Chinese equities ended the month up 11.8%, supported by a strong tech sector which benefitted from expectations around AI developments like DeepSeek. This came after President Xi Jinping met with the countries tech leaders, promising to “unwaveringly encourage” the private sector. Alibaba’s Jack Ma was present in this meeting – his most significant public appearance since he disappeared after criticising the Chinese government for its crackdown on Chinese tech companies in 2020.
Chart 2: DeepSeek Shock Catapults China Tech to Bull Market (Source: Bloomberg)
Local Markets
Local equities gained were flat for the month of February. Industrials ended the month up 3.4% and financials ended the month up 0.8%. In contrast, resources ended the month down 6.2%. Bonds ended the month flat too. Sentiment towards South Africa continued to decline as after the US quickly followed through on Trump’s executive order to withdraw aid from South Africa in response to the Expropriation Act, which came into effect in January 2025. On the political front, the Budget Speech was postponed to March, after Minister Enoch Godongwana failed to clear a proposed 2% VAT increase with the DA. Any increase in VAT will no doubt add strain to South African businesses and citizens.
Chart 3: Long end of SA Yield Curve shows decline in sentiment over the past 3 months (Source: Infront)
Chief Investment Officer, Duane Gilbert’s Commentary
Our market outlook for 2025 remains bullish. Fed rate cuts amid a non-recessionary environment is an unambiguously bullish configuration for equities. The US remains our destination of choice – growth stocks and small caps in particular. We are of the views that US tariffs are insufficient to derail US growth. Growth rates in Europe, China and Japan continue to disappoint.
Emerging markets, South Africa in particular, have been the flavour of the day for the past few months but this trend is reversing. Global bonds are pricing in higher growth and inflation; however, informal inflation measures and a strong dollar suggest that inflation could surprise to the downside in the coming months.
We expect the rand to remain under pressure as our government continues to accumulate debt. Furthermore, the dollar should remain strong with Trumps US focused policies and superior US Growth.
South African equities are particularly cheap but vulnerable to global sentiment. One needs to carefully pick companies that can grow their earnings in a low growth environment. We maintain a low exposure to South African government bonds. We prefer exposure to high-quality secured credit. We maintain a modest cash position, which gives us the dry powder we need to take advantage of bargains that may arise from any market sell-off.
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